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MCLE Self-Assessment Test

Latest audit gives bar high marks

Auditors hired in the wake of an embezzlement scheme by a State Bar employee have given the bar high marks for its internal controls over the expenditure of member dues. “Every single penny of member dues is subjected to strong disbursement controls,” said Chief Financial Office Peggy Van Horn, who said the most recent audit found virtually no control weaknesses with the bar’s procurement and accounts payable, payroll and budget divisions.

The board of governors audit committee hired Sacramento consulting firm Sjoberg Evashenk to examine internal financial controls after the former property manager embezzled about $675,000 in rent payments from tenants at the bar’s 180 Howard St. building in San Francisco. Acknowledging that the bar has faced recent challenges including “increased budgetary constraints, staff turnovers in key positions and trying to restore trust after an embezzlement,” Sjoberg found that increased public scrutiny “has allowed State Bar management to take a proactive approach in identifying and mitigating internal control risks and embrace opportunities to strengthen its existing policies and procedures.”

Many of the firm’s findings verified an earlier audit performed by independent financial statement auditors Macias, Gini and O’Connell that was submitted to the legislature in April. In addition to evaluating internal controls, Sjoberg was asked to identify any significant risks in the business process and recommend improvements.

Laura Chick, a public member of the board of governors and California’s inspector general, pronounced herself pleased with the audit results and said the bar’s business practices “look to be in good shape.”

Nothing in the audit, she added, points to “poor internal controls or poor fiscal management. Quite the opposite. It shows the potential problems and weaknesses have been addressed. We’re in pretty good shape.”

Its key findings, in language only an auditor can love:

  • Control of payroll operations is “strong.” Payroll processing is audited annually, there were no discrepancies between timesheets, payroll registers and general ledger accounts, and “appropriate” human resources approvals were in place for a variety of HR activities.
  • The procurement operation is diligent in ensuring that the bar “follows competitive procurement guidelines when purchasing goods or services.” The internal control framework for accounts payable and procurement is “strong.”
  • In its budgeting operation, the bar has “embraced the tenets of accountability and transparency.” It has adopted a reporting approach supported by the Government Finance Officers Association that is timely, succinct and user-friendly. “In total, the budget planning process is formal and deliberative and includes adequate controls.”
  • The bar’s 3,700 line items in the budget are clearly segregated, a structure that protects the uses of the many funds collected and expended.

Sjoberg further praised the bar for its attention to fiscal integrity, which “establishes a robust budget control.”

Several of the auditor’s recommendations already have been completed and Van Horn said others, including evaluating use of temporary employees versus competitively bidding the work and renegotiating some long-term contracts, will be implemented shortly.